Future of IT: Why Tech Managers Will Need Sharper Skills

WEBINAR:On-Demand

As IT departments start to shed staff and farm out noncore competencies, CIOs must learn to adapt fast and become sharp negotiators as well as solid managers.

The IT organization is changing--so much so that, soon enough, it may be unrecognizable.

A number of factors in play for years are gaining steam, and together they'll likely force a dramatic transformation in the size and scope of the IT department.

Internal organizations are becoming smaller, more nimble and more focused. Globalization is affecting the costs of labor and the scope of the marketplace. CIOs, with a greater emphasis on business acumen, are reconsidering what is truly core to their departments--and with more processes and systems being deemed commodities, they're shipping a greater number of IT functions to specialists.

Welcome to the Hollowing of Big IT.

More than half of CIOs foresee a revolutionary reshaping of their IT departments in the next five years, according to CIO Insight research, with the IT organization moving away from a monolithic department to a smaller team of managers, analysts and planners. Most specialty work will be farmed out to consultants, contractors or offshore service providers.

Gone, our survey shows, are the days of hundreds or thousands of staffers divvying up responsibilities for application development, systems administration, infrastructure maintenance and other tasks. "IT departments are moving away from [outsourcing] low-risk, low value-add activities and [outsourcing] higher-risk, higher valueadd activities," says Sam Maitra, a director in PricewaterhouseCoopers' outsourcing and shared services advisory practice. "It's a confluence of maturity of the markets, positive experiences and technology."

Add to that the need for companies to innovate faster and introduce new capabilities while dealing with increased commoditization of information technology.

Moving to a leaner model, focused on their organizations' strengths and shipping out the rest, is becoming the reality. "People are realizing now that the model must change," says Bob Willett, CIO of Best Buy and CEO of Best Buy International. "You have to partner with the best of the best to deliver the big picture."

To be sure, the hollowed-out model hasn't been adopted by everyone, or even the majority. A key driver--outsourcing--has been an integral component of IT strategy for years, at least in terms of farming out hardware and systems functions. Today, though, businesses outsource more specialized work, from software development to knowledge management.

"This isn't something that was a neat idea five or 10 years ago, when you had some trophy CIOs who talked about global sourcing and managing IT like a business," says Michael Gerrard, a vice president and distinguished analyst at Gartner, who previously served as a CIO in the financial services sector. "The world has changed that. To compete in the new environment, IT becomes more strategically important than it was before. And that's making businesses rethink their expectations of the CIO and their expectations of IT."

Still, some signs point to the contrary. Nearly 40 percent of respondents to our September cost management survey said if their companies had to make emergency spending cuts, services like consulting and outsourcing would go first. But most organizations don't plan for emergencies. And though 68 percent of respondents to our March survey on outsourcing said the practice was overrated as a cost-cutting strategy, a growing number of CIOs see outsourcing as a way to acquire hard-to-get skills, not just as a cost-saver. When push comes to shove, many organizations won't be able to function without outsourcing.

For those CIOs and executives adopting the model, a number of changes are under way. Not only must they contend with severely limited staff time and departmental budgets, but they must learn to operate in a changing environment where they're expected to manage and control alliances and negotiate contracts and service-level agreements, all while staying in tune with business needs and priorities.

The CIO at the helm of the hollowed-out IT organization needs a new arsenal of weapons--and a progressive view of what's ahead. IT executives must make tough decisions about what projects to assign internally vs. outsource, what level of departmental headcount they require and how to build sustainability into their new models.

If successful, CIOs can achieve a new level of recognition among the higher ranks of the C-suite. If not, they can jeopardize their own careers--and the viability of the departments they run.